Designating beneficiary tricky task

Most of us want to make sure when we die, our possessions, property, investments and other assets end up in the hands of the people we intend.

To make this happen, the first and most important step is having a will that is current, and which clearly and fully outlines your wishes.

But there is more to a good estate plan than a will. Keeping in mind I am not a lawyer, and therefore only an amateur pundit on estate planning (although I do have a trust and estate practitioner designation), here are some basics.

Your will names a person, persons or a trust company to be your executor. (Any person named as your attorney in a power of attorney document loses all status on your death, unless that person is also named as your executor or executrix.)

The executor is your representative, authorized to carry out the instructions in your will regarding any assets that form part of your estate.

However, not all of the assets you consider yours end up being part of your estate. For example, anything you own jointly with another person, with right of survivorship, becomes that other person's property on your passing.

So, if you and your spouse (or you and your adult child) own a property or an investment account together, in joint title with right of survivorship, then that asset becomes the property of the other person when you meet your maker.

Let's say you intend to leave all of your estate to your three children, Pam, Bill and Bob. For this example, there are three assets -- your house worth $150,000, your RRIF worth $150,000 and your bank account worth $150,000.

If you own all of those assets in your name alone (not in joint name with anyone), and you have named your estate as the beneficiary of the RRIF, then $450,000 will go into your estate. If your will says divide the estate three ways, then the net amount (after taxes on the RRIF and any other expenses of the estate) will be paid out equally to Pam, Bill and Bob, as planned.

However, let's say Pam helps out with your banking, so you decide -- for convenience -- to put the bank account in joint name with Pam. Then someone tells you you can reduce probate fees by having your house in joint name with a child, so you put that in joint title with Pam as well.

What happens then, if you go six feet under?

Well, let's follow the logical path. The bank account becomes Pam's, and does not form part of the estate. The house becomes Pam's, as well. Only the RRIF goes into the estate. The RRIF value counts as taxable income in the year of death, so roughly one-third of its value will be lost to taxes. That will leave an estate of, say, $90,000 to be divided among Pam, Bill and Bob, or $30,000 each.

Accidentally -- but legitimately -- Pam has ended up with the house and the bank account, and the brothers were short-changed. This parent inadvertently disinherited two of her children.

Leaving all assets to the estate, with no joint title declarations, is one way to ensure the will instructions are carried out as intended. Working with joint title declarations can have advantages, but you see here the potential pitfalls. Effective solutions could have included having all names put on any joint title declarations, but that has other potential complications.

I am ignoring the issues of legal ownership versus beneficial ownership, potential taxable events when re-registering property or investment accounts, and other potential legal and tax issues involved.

The ultimate recommendation? Think through your estate wishes carefully, then use a good lawyer who specializes in estates, and who is a good listener. Pay what it takes -- it will be worth it.

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On Monday, Dec. 3 from 4 p.m. to 8 p.m., we are hosting a book signing at the Winnipeg Free Press News Café at 237 McDermot Ave. in the Exchange District. If you would like to have your copy of my book Managing the Bull - Detect and Deflect the Crap... A No-Nonsense Guide to Personal Finances signed, or if you would like to purchase a copy, or just come by and say hello, please do.

I look forward to greeting you in person.

Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice. Please consult a tax expert for your individual tax situation.

David Christianson, BA, CFP, R.F.P., TEP, is a financial planner in Winnipeg.

Republished from the Winnipeg Free Press print edition November 30, 2012 B16